Income Tax Appellate Tribunal - Delhi
Commissioner Of Income-Tax vs Sequoia Construction (P.) Ltd. on 24 October, 1985
Equivalent citations: [1985]14ITD348(DELHI)
ORDER
--Merger of original order with reassessment order.
Ratio:
Where the original order got merged with reassessment order, the original order could not be revised by Commissioner under section 263.
Held:
The reassessment gives the power to the Income Tax Officer to reopen every item of escaped assessment. Under these circumstances, the original assessment merges with the final assessment. Therefore, the Commissioner had no powers to modify the assessment under section 263.
Case Law Analysis:
Vijayalakashmi Lorry Service v. Addl. CIT ITRC No. 37 of of 1973 dt. 17-9-1975 affirmed in W.P. No. No. 72/81 dt. 26-10-1984 and Mysore Iron & Steel Co. Ltd's. case ITRC No. 171 of 1980 dt. 26-10-1984 followed.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 ORDER B. Gupta, Accountant Member
1. By the instant reference application under Section 256(1) of the Income-tax Act, 1961 ('the Act') the Commissioner, requires us to refer the following two questions said to be of law arising out of the order of the Tribunal dated 25-11-1983 in IT Appeal No. 3913 (Delhi) of 1982 :
1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in reducing the disallowance under the head 'Travelling and conveyance expenses' from Rs. 61,846 to Rs. 19,000 by ignoring the material fact that the vehicles were not used for the business activities of the assessee.
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing that the assessee-company be treated as an industrial company by following the order in the case of ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575 (Delhi) (SB) in which the matter on this issue has just been set aside and restored to the ITO and no findings have been given with regard to the status of the company.
Since it appears to us that no referable question of law arises out of the aforementioned order of the Tribunal, we decline to make a statement of the case.
2. In the assessment year 1977-78, the respondent limited company engaged in the business of constructing multi-storeyed buildings had claimed an expenditure of Rs. 74,726 under the head 'Travelling, conveyance, motor vehicle maintenance expenses'. The break-up of these expenses were as follows :
Rs.
1. Conveyance expenses 45,862
2. Repair of cars 25,450
3. Travelling 3,414 Out of these the ITO had disallowed Rs. 61,846 and thereafter when the matter was taken up in appeal the Commissioner (Appeals) had upheld the disallowance. When the matter came up in further appeal the Tribunal found firstly, that as a matter of fact the assessee's business involvements had not decreased even though 95 per cent of its assignment to construct 'Sagar Apartments' at Tilak Marg, New Delhi, had already been achieved. This finding of the Tribunal was based on the examination of the balance sheet of the assessee-company and on going through the note which had been submitted before the Commissioner (Appeals) during the appellate proceedings. In other words, the Tribunal found that the lower two authorities were not correct in holding that the assessee's business activities in the assessment year 1977-78 were on a very nominal scale. Thereafter the Tribunal proceeded to examine the details of the expenses under the above-mentioned heads as have been furnished by the assessee as a part of its paper book. It was found once again as a matter of fact that apart from the items which had been mentioned in the assessment order, there were no other expenses which could be described as inadmissible in nature. The learned departmental representative had also not been able to pinpoint any other items of inadmissible nature besides those which had been mentioned in the assessment order. The Tribunal further found as a fact that some of the expenses which had been included in the list of inadmissibles in the assessment order were not in fact, inadmissible. Over and above the Tribunal also considered the decision of the Tribunal in the assessment year 1978-79 where the reasonable extent of inadmissible expenses under the above heads had been fixed at 25 per cent. It was after, thus, examining the matter in all its aspects that the Tribunal gave" a finding of fact that an. estimated sum of Rs. 19,000 could be attributed to be of inadmissible nature. According to us this was a pure finding of fact and, therefore, the first question as proposed by the Commissioner is rejected With regard to the second question it had been repeatedly stated by the learned counsel for the respondent on 25-5-1984, 8-6-1984 and 15-6-1984 when the reference application under consideration had been fixed for hearing that the decision of the Special Bench of the Tribunal, dated 20-10-1983 in the case of ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575 (Delhi) had been accepted by the department and that no reference had been sought by the Commissioner insofar as the finding had been given therein that a company involved in construction work would be an 'industrial company'. Every time on the above-mentioned dates the departmental representative had been requested to ascertain and let us know as to whether the averment made by the learned counsel for the respondent was correct or not. Ultimately it has been told on behalf of the department that no information in that regard is available. In the circumstances when the representative of the revenue has failed to give us the necessary information we will accept the statement made by the learned counsel of the respondent as a statement at bar and hold that since the department have accepted the correctness of the aforesaid decision of the Special Bench of the Tribunal, the second question as proposed by the Commissioner also ceases to be a referable question of law.
3. In the result, reference application filed by the Commissioner is rejected.
S.S. Mehra, Judicial Member
1. I have the benefit of going through the detailed order prepared by my learned brother Shri B. Gupta, but regret my inability to fully agree with the conclusion arrived at. The facts have in detailed been discussed in the said order. The revenue raised two questions. Question No. 1 pertains to deletion of certain disallowances and question No. 2 pertains to the issue as to whether the assessee-company be treated as an industrial company. My learned brother by the said order has rejected the reference application. So far as question No. 1 is concerned, there appears to be no difficulty. The reference appears to have been rightly declined. As far as question No. 2 is concerned, I am of the considered view that it is definitely a referable question of law and the reference thereof cannot be refused.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 It is seen that a difference of opinion has arisen. Therefore, by this order under Section 255(4) of the Act, the point of difference is being stated and the file is being placed before the worthy Senior Vice President, for the purpose of being placed before the worthy President, for proceeding in terms of Sub-section (4) of the section.
2. Question No. 2 raised by the revenue is to the following effect :
Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing that the assessee-company be treated as an industrial company by following the order in the case of ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575 (Delhi) (SB) in which the matter on this issue has just been set aside and restored to the ITO and no findings have been given with regard to the status of the company ?
3. The point of difference is as under :
Whether question No. 2 referred to above is a referable question of law and warrants reference in the given circumstances ?
THIRD MEMBER ORDER G. Krishnamurthy, Senior Vice President
1. On a point of difference of opinion between the learned Members, who heard this reference application, the matter was referred to me as a Third Member by my President under Section 255(4). The point of difference of opinion referred to me is :
Whether question No. 2 referred to above is a referable question of law and warrants reference in the given circumstances ?
The question referred was :
Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing that the assessee-company be treated as an industrial company by following the order in the case of ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575 (Delhi) (SB) in which the matter on this issue has just been set aside and restored to the ITO and no findings have been given with regard to the status of the company ?
2. Before I go to the question referred for reference and the point of difference of opinion, it is necessary to briefly narrate the facts that led to the filing of the reference application. The assessee is a private limited company engaged in the construction of apartments. During the course of assessment a claim, was made on behalf of the company that it was an industrial company within the meaning of the Act and it is to be subjected to a lower rate of taxation. The ITO did not deal with this point but several other disallowances were made objecting to which the assessee carried the matter by way of appeal before the Tribunal. After dealing with all these disallowances, the Bench with regard to the claim of the assessee-company as an industrial company observed under:
Lastly, we find that the assessee-company which was engaged in the business of constructing multi-storeyed buildings would be entitled to be treated as an industrial company in view of the Special Bench decision of the Income-tax Appellate Tribunal dated 20th of October, 1983 in the case of ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575 (Delhi). That decision had been made available to us by the learned counsel and we find that decision would squarely apply to the appellant-company also. We accordingly direct the recalculation of the income-tax demand in the case of the appellant on the basis that it was an 'industrial company'.
Subsequently, a miscellaneous application was filed by the ITO before the Tribunal by pointing out that the ground that the assessee should be assessed as an industrial company did not arise out of the orders passed by the lower authorities and, therefore, the Tribunal should not have decided that ground. The Tribunal found that this ground was very much raised before the Commissioner (Appeals) but he failed to decide it. Since the matter did not involve any investigation the Tribunal decided the ground on merits gave the above direction. When the situation became clear the departmental representative withdrew the miscellaneous application. Subsequently, the department filed a reference application raising two questions of which question No. 2 was already extracted above. I am not in this matter concerned with question No. 1. The Tribunal heard this reference application. It held that question No. 1 was a pure question of fact and was not a question of law. There was no difference of opinion between the learned brothers on this issue. With regard to question No. 2 the learned Accountant Member observed that the Bench had only followed a Special Bench order of the Tribunal in the case of Hydle Constructions (P.) Ltd. (supra) and that it was brought to the notice of the Bench that the department had accepted that decision of the Special Bench and no reference application was filed and when this was put to the departmental representative for clarification and even though the matter was adjourned three times, no clarification was furnished. Therefore, the Bench had to presume that what was stated on behalf of the assessee at the bar must be taken as correct. Following that view the learned Accountant Member held that since the department accepted the correctness of the decision of the Special Bench, the second question ceased to be a referable question of law. He, therefore, dismissed the reference application. But the learned Judicial Member was of a different view. In a short order the learned Judicial Member while expressing his agreement with the conclusion of the learned Accountant Member on the first question held that as far as question No. 2 was concerned, he was of the considered view that it was definitely a referable question of law and a reference thereof should not be refused. It was on account of this difference of opinion that the matter was referred to the President, who in turn referred the matter to me.
3. Now the point is whether question No. 2 extracted above is a question of law or not arising out of the order of the Tribunal as a referable question of law. To decide this question what is more important is what was the attitude and reaction of the department in regard to the Special Bench decision, which was followed by the Members of the Bench. It is now a common ground that no reference application was filed by the department raising any question of law as arising out of the decision of the Special Bench of the Tribunal referred to above. This means the principles enunciated by the Special Bench in that order were accepted by the department. It is no doubt true that the Special Bench remitted the matter to the ITO for further enquiry but the further enquiry was not on the question as to whether the assessee-company was an industrial company or not but on the question whether the requirement of the law that an industrial company should derive income mainly from the activities which made it industrial company were present or not. If the income from those activities formed a major portion of the income, then the company could be regarded as industrial company. Otherwise even an industrial company would not be entitled to the benefit of the lower rate of tax. It is to find out this factual position as to whether its income was mainly from this activity or not that the matter was remitted to the ITO but the matter whether a construction company engaged in the construction of multi-storeyed buildings as an industrial company or not was decided by the Tribunal in favour of the assessee and on this issue the matter was not referred to the ITO at all. Having decided this principle and to satisfy whether the further requirements of law, namely, creating a provision, etc., were satisfied or not the matter was sent back to the ITO for the verification of the factual matters. That does not mean that the Tribunal did not decide in principle the question whether the assessee-company is an industrial company or not. The department having accepted in principle that portion of the order of the Tribunal, cannot be said to be aggrieved by an order passed by another Bench of the Tribunal which only followed the view expressed by the Special Bench. Even here also the direction given by the Bench was that the ITO should calculate the tax treating the assessee-company as an industrial company which means that he should go into those requirements, otherwise the calculations of tax may be difficult. It is therefore, incorrect on facts to say that the Special Bench in the case of Hydle Constructions (P.) Ltd. (supra) did not decide the principle as to the status of the company which is engaged in the construction of multi-storeyed buildings. It is this aspect that the learned Accountant Member has highlighted by pointing out in his order that the department having accepted the correctness of the decision of the Special Bench in the case of Hydle Constructions (P.) Ltd. (supra) it could not be said to be aggrieved by the decision given by the Bench and, therefore, the second question as proposed by the Commissioner ceased to be a referable question of law. I also do not find any reason given by the learned Judicial Member as to how he arrived at the conclusion that question No. 2 was definitely a referable question of law. With the acceptance of the Special Bench decision by the department that question ceased to be a question of law needing an opinion of the High Court. An opinion of the High Court is needed only when there is a dispute subsisting. When no dispute subsists or survives there is no need for an opinion. I am, therefore, in agreement with the view expressed by the learned Accountant Member that the second question is not a referable question of law and, therefore, no reference be given on that question.
4. The matter will now go back to the Bench, which heard the reference application originally for disposal according to the majority opinion.